Insurance is coverage by a contract binding a party to indemnify another against a specified loss in return for premiums paid. Life insurance is a specific type of insurance contract where the specified loss is loss of life, i.e, death, of the insured life. To assess the likelihood of death of an insured life, for example, to set premiums, insurers can refer to mortality data provided by agencies, e.g., the US Centers for Disease Control and Prevention and the National Center for Health Statistics. The data is released on an annual basis, although there is typically a reporting lag of up to two years. The available information is typically provided for age bands for each sex.
Certain events that have health related consequences, such as natural disasters, wars or disease outbreaks, can cause unexpected increases in mortality rates. For example, the influenza pandemic of 1918 caused an approximate 33% increase in the mortality rate over the previous year, and World War II caused an increase in the mortality rate of 6.5%. Such unexpected increases in mortality rates are typically unpredictable by insurers.
Reinsurance is coverage by a contract binding a issuer to indemnify an insurer against a specified loss in return for premiums paid. Insurers can spread their risk by contracting with issuers, to thereby receive coverage in whole or in part for the risk the insurer has incurred in insuring someone else.